Although Bitcoin and Ethereum are down roughly 25% and 33% in the past year -- and more than 50% from their all-time highs -- the three unstoppable stocks here may offer a more intriguing risk-reward profile than these cryptocurrencies.
While the two leading cryptocurrencies will surely help reshape the technological landscape of the future -- along with a few of today's smaller cryptos -- they may not keep pace with the three businesses we will explore today.
With Bitcoin and Ethereum often viewed as "gold replacements" and most smaller cryptos taking a breather due to the turmoil in the industry, investors may want to consider the high growth of SoFi Technologies (SOFI 4.55%), ZoomInfo (ZI 1.15%), and MercadoLibre (MELI 1.96%). Let's examine what gives these stocks such intriguing potential.
1. SoFi Technologies
After the launch of its bank in 2021, SoFi continued rapidly evolving from a student loan specialist into a one-stop shop for financial services. Increasing its member count by 46% in the first quarter of 2023, SoFi now has 5.7 million members.
Although it may sound foolish to say SoFi looks like a winner because its stock has tumbled since its mid-2021 initial public offering, it has positioned itself to thrive in the coming years.
Operating in three segments -- lending, technology platform, and financial services -- the company aims to build out what it calls a "financial services productivity loop." Anchored by its technology platform -- which acts as the network on which its banking operations run -- SoFi offers its members a wide array of financial products, such as checking, savings, investment accounts, a member credit card, and more.
Once customers enter the company's ecosystem, SoFi may notice the member's monthly student loan payments are very high and could potentially offer to refinance it through an offering of its own. The same could be said for its other two lending verticals: personal loans and mortgages. As SoFi learns from its banking members and accumulates data, it can offer tailor-made financial solutions to improve its customers' financial situations.
And despite bank failures becoming a seemingly weekly occurrence, SoFi increased its total deposits by $2.7 billion to $10.1 billion in Q1 from the prior quarter. Furthermore, 90% of the company's deposits were made via direct deposit, with 97% being fully insured -- reducing the common fears of a bank run.
Led by this stable base of deposits as a low-cost funding source for its lending operations, management expects to reach generally accepted accounting principles (GAAP) profitability by Q4 of 2023. Although the company now has a -7% net profit margin, it is rapidly moving toward profitability.
Data source: YCharts SOFI Profit Margin (Quarterly)
This move toward profitability, paired with the company's 43% revenue growth in Q1 and burgeoning base of deposits, makes SoFi attractive by trading at a price-to-sales (P/S) ratio of just 3.1.
2. ZoomInfo
ZoomInfo provides go-to-market data and intelligence for the sales, marketing, operations, and recruiting divisions of its more than 30,000 business customers. Counting more than half of the Fortune 1,000 as clients -- mainly from the smaller half -- ZoomInfo has tripled its sales in just three years as a public company.
However, the company's share price dropped almost 40% over the same time, as its nosebleed P/S ratio of 27 came crashing down.
Further highlighting this valuation crash, ZoomInfo now trades at just 21 times free cash flow (FCF), demonstrating its transition from an overpriced growth stock to a reasonably priced FCF-generating machine.
Although the company's revenue growth rates have decelerated over the past few years, it recorded 24% growth in the first quarter of 2023, despite the awful macroeconomic environment for its technology and finance companies. Founder and Chief Executive Officer Henry Schuck explained that while dollar-based net retention rates in Q1 dipped below the fourth quarter's mark of 104%, its gross retention rates (percentage of customers kept) remained strong.
This shows that a handful of the company's customers are merely reining in spending rather than eliminating ZoomInfo's products. Earning top marks from technology research firms Forrester and G2 in marketing data and sales intelligence, respectively, the company has a No. 1 or leadership designation across more than a dozen of its products.
With management forecasting 16% sales growth in the second quarter and armed with a 21% FCF margin (even after removing stock-based compensation), ZoomInfo's commanding presence in its data and intelligence niche looks unstoppable.
3. MercadoLibre
Despite being the largest of these three stocks, with a market capitalization of more than $60 billion, Latin American e-commerce and fintech juggernaut MercadoLibre may still offer the most upside potential for investors. The company reported foreign exchange-neutral (FXN) sales growth of 58% in the first quarter, a notable resurgence.
Data source: YCharts MELI Revenue (Quarterly YoY Growth)
Powered primarily by its three core markets of Brazil, Argentina, and Mexico, the company has been one of the best stocks to own over the past five and 10 years.
With more than 100 million users across its e-commerce and fintech operations, MercadoLibre continues its rapid growth, aiding users who often lack essential banking products or online shopping options. Capitalizing on the former during Q1, the company increased total payment volume across its network by 96% on an FX-neutral basis compared to a year earlier.
Even more incredibly, for payments made off MercadoLibre's shopping platform, volume grew by an astonishing 121% (minus FX). By being one of the first movers in Latin American digital banking, MercadoLibre's two units somewhat resemble eBay before its PayPal spinoff in 2015 -- a promising comparison for investors.
However, whereas eBay's growth decelerated after PayPal's departure, MercadoLibre looks poised to continue surging as it expands to new countries. Trading at just 25 times FCF, investors could still see lofty returns from MercadoLibre despite its already large size and dominant leadership position.
